Omar Bennett
The United States federal budget is the money formally approved by Congress and the President each year. The budget is decided through a variety of legislative actions, including mandatory and discretionary spending. Mandatory spending, which includes Social Security, Medicare, and Medicaid, makes up a large portion of the budget and is often legislated for multiple years. Discretionary spending, on the other hand, is decided by Congress each year and includes funding for federal agencies and programs such as transportation, education, and defence. The budget also includes interest payments on the federal debt, which have been growing in recent years. In recent years, the federal budget has been over $6 trillion, with a significant increase in 2020 due to the COVID-19 pandemic response.
| Characteristics | Values |
|---|---|
| Fiscal year | Runs from October 1 of one calendar year to September 30 of the next |
| Mandatory spending | Funding for Social Security, Medicare, veterans benefits, and other spending required by law. This typically uses over half of all funding. |
| Discretionary spending | Money formally approved by Congress and the President during the appropriations process each year. Generally, Congress allocates over half of the discretionary budget towards national defense and the rest to fund the administration of other agencies and programs. |
| Interest on debt | This usually uses less than 10% of all funding. |
| Total federal budget | $6.9 trillion in 2024, $7 trillion in 2020 |
| Spending as % of GDP | 25.1% in 2022, 24% in 2024 |
| Spending categories in 2022 | Medicare and Medicaid ($1.339 trillion), Social Security ($1.2 trillion), non-defense discretionary spending ($910 billion), Defense Department ($751 billion), and net interest ($475 billion) |
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Mandatory spending
The largest increases in mandatory spending over the past 20 years have been for major healthcare programs. Mandatory spending also includes funding for veterans' benefits, highway maintenance, building construction, research, and education.
The CBO estimated $191 billion in mandatory spending savings from student loan programs in 2023. This was because the Supreme Court blocked the Biden administration's plan to cancel student loan debt. CBO also estimated $197 billion in savings from offsetting receipts. Offsetting receipts are funds collected by government agencies from other government accounts or the public, which reduces gross spending. Examples include payments for federal employees’ retirement benefits, and receipts from natural resource activities like oil and gas.
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Discretionary spending
Congress decides the amount and type of discretionary spending each year, setting funding levels for federal agencies. Discretionary spending usually accounts for around a third of all funding. In 2023, discretionary spending accounted for $1.7 trillion of federal spending. In FY2022, non-defence discretionary spending used to run federal departments and agencies was $910 billion.
Congress typically allocates over half of the discretionary budget towards national defence, with the rest funding the administration of other agencies and programs. These programs include transportation, education, housing, and social service programs, as well as science and environmental organisations.
Supplemental appropriations, or supplemental spending, are appropriations enacted after the regular annual appropriations when the need for funds is too urgent to wait for the next regular appropriations. In 2020, Congress passed four supplemental appropriations to aid the nation's recovery from the COVID-19 pandemic.
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Interest on debt
The national debt is the total amount of money that a country owes to its creditors. The US has always carried debt, but the total has expanded rapidly since 2008. The national debt has increased every year over the past decade, and while interest expenses have remained fairly stable due to low interest rates, they will increase as interest rates rise. The federal government spends money on programs such as healthcare, education, and Social Security, and accumulates debt by borrowing to cover expenses. As the debt grows, so does the spending on interest expenses.
The US Treasury Department tracks and reports the national debt. The debt ceiling, or debt limit, is a restriction imposed by Congress on the amount of outstanding national debt that the federal government can have. Once the debt ceiling is reached, the federal government loses the ability to increase the amount of outstanding debt and cannot pay bills or fund programs and services.
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Federal programs
Discretionary spending refers to the portion of the budget that is determined annually by Congress through the appropriations process. This type of spending allows for flexibility in responding to unexpected circumstances like a recession or a pandemic. Supplemental appropriations are utilised when needs are too urgent to wait for regular appropriations, such as during the COVID-19 pandemic. National defence typically receives the largest share of discretionary funding, with the Pentagon and military consuming more than half of this budget. However, other areas that benefit from discretionary spending include transportation, education, housing, social services, science, and environmental initiatives.
On the other hand, mandatory spending constitutes the larger portion of the federal budget, often accounting for more than two-thirds of the total. This category includes funding for Social Security, Medicare, veterans' benefits, and other legally mandated expenditures. Despite occasional calls for reductions in these areas, they remain popular programs that provide essential support to a significant portion of the population.
Economic security programs also receive a notable allocation from the federal budget. These programs provide aid to individuals and families facing financial hardship, excluding health insurance or Social Security benefits. In 2024, about 7% of the budget, amounting to $476 billion, was dedicated to these economic security initiatives.
Additionally, a small percentage of the budget is allocated for international programs, including humanitarian aid and the operation of US embassies and consulates. Interest payments on the national debt also factor into the federal budget, with the CBO projecting a federal budget deficit in the coming years.
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Defence
The US defence budget is split into two main categories. The first is the Department of Defense (DoD) budget, which is spent on military activities. In 2023, this accounted for the majority of the defence budget, at $776 billion. Within this, the largest category is operation and maintenance, which cost $318 billion in 2023. This covers the costs of military operations, training and planning, equipment maintenance, and most of the military healthcare system. The second-largest category is military personnel, which supports pay and retirement benefits for service members and cost $184 billion in 2023.
The second main category of defence spending is on defence-related activities carried out by other agencies, such as the Department of Energy and the Federal Bureau of Investigation. In 2023, this accounted for $43 billion of the defence budget.
The defence budget also has close relationships with two other large categories of spending that technically fall outside of it. The first is veterans' benefits and services, on which the federal government spent $302 billion in 2023. The second is international affairs, to which the federal government devoted $84 billion in 2023 for discretionary spending on activities such as humanitarian assistance and international development.
The US defence budget has generally continued to grow, even amid federal austerity and cuts. This has been driven by a multigenerational push to cut taxes and slow spending growth, as well as the end of the Cold War, which has resulted in a shift from military forces to support services. In 2013, the Department of Defense was the third-largest executive branch department and utilised 20% of the federal budget.
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Frequently asked questions
The U.S. federal budget is the amount of money the federal government spends each year. The fiscal year runs from October 1 to September 30 of the following year.
Federal spending can be divided into three groups: mandatory spending, discretionary spending, and interest on debt.
Mandatory spending is legislated by Congress and often covers multiple years. It includes Social Security, Medicare, Medicaid, and other safety net programs like food stamps and welfare. It also covers veterans' benefits, highway construction and maintenance, and other spending required by law.
Discretionary spending is money formally approved by Congress and the President each year. It includes spending on the Pentagon and military, which usually accounts for more than half of the discretionary budget. It also funds other agencies and programs such as transportation, education, housing, and science.
Interest payments are made on the federal debt, which accumulates from budget deficits over the nation's history. Interest payments account for a small portion of the federal budget.
